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EX-32.1 - EX-32.1 - COURIER Corpa10-3092_1ex32d1.htm
EX-32.2 - EX-32.2 - COURIER Corpa10-3092_1ex32d2.htm
EX-31.2 - EX-31.2 - COURIER Corpa10-3092_1ex31d2.htm
EX-31.1 - EX-31.1 - COURIER Corpa10-3092_1ex31d1.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 26, 2009

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to               

 

Commission file number 0-7597

 

COURIER CORPORATION

(Exact name of registrant as specified in its charter)

 

Massachusetts

 

04-2502514

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

15 Wellman Avenue, North Chelmsford, Massachusetts

 

01863

(Address of principal executive offices)

 

(Zip Code)

 

(978) 251-6000

(Registrant’s telephone number, including area code)

 

NO CHANGE

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  o  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one:)

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non- accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).  Yes  o  No x

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at February 1, 2010

Common Stock, $1 par value

 

11,983,040 shares

 

 

 



 

COURIER CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

(Dollars in thousands except per share amounts)

 

 

 

THREE MONTHS ENDED

 

 

 

December 26,

 

December 27,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Net sales

 

$

63,104

 

$

59,647

 

Cost of sales

 

45,808

 

45,219

 

 

 

 

 

 

 

Gross profit

 

17,296

 

14,428

 

 

 

 

 

 

 

Selling and administrative expenses

 

12,651

 

13,076

 

 

 

 

 

 

 

Operating income

 

4,645

 

1,352

 

 

 

 

 

 

 

Interest expense, net

 

118

 

227

 

 

 

 

 

 

 

Pretax income

 

4,527

 

1,125

 

 

 

 

 

 

 

Income tax provision (Note C)

 

1,743

 

422

 

 

 

 

 

 

 

Net income

 

$

2,784

 

$

703

 

 

 

 

 

 

 

Net income per share (Note G):

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.23

 

$

0.06

 

 

 

 

 

 

 

Diluted

 

$

0.23

 

$

0.06

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.21

 

$

0.21

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

2



 

COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 

 

 

December 26,

 

September 26,

 

 

 

2009

 

2009

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

488

 

$

492

 

Investments

 

1,080

 

1,017

 

Accounts receivable, less allowance for uncollectible accounts of $1,691 at December 26, 2009 and $1,600 at September 26, 2009

 

34,189

 

34,176

 

Inventories (Note B)

 

37,793

 

38,026

 

Deferred income taxes

 

4,461

 

4,462

 

Other current assets

 

1,135

 

1,404

 

 

 

 

 

 

 

Total current assets

 

79,146

 

79,577

 

 

 

 

 

 

 

Property, plant and equipment, less accumulated depreciation: $159,948 at December 26, 2009 and $160,783 at September 26, 2009

 

86,623

 

89,754

 

 

 

 

 

 

 

Goodwill (Note A)

 

24,980

 

24,980

 

 

 

 

 

 

 

Other intangibles, net (Note A)

 

3,669

 

3,720

 

 

 

 

 

 

 

Prepublication costs, net (Note A)

 

8,924

 

9,194

 

 

 

 

 

 

 

Other assets

 

1,284

 

1,212

 

 

 

 

 

 

 

Total assets

 

$

204,626

 

$

208,437

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

3



 

COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 

 

 

December 26,

 

September 26,

 

 

 

2009

 

2009

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

$

96

 

$

96

 

Accounts payable

 

10,108

 

10,974

 

Accrued payroll

 

6,353

 

5,950

 

Accrued taxes

 

2,342

 

3,032

 

Other current liabilities

 

9,145

 

7,098

 

 

 

 

 

 

 

Total current liabilities

 

28,044

 

27,150

 

 

 

 

 

 

 

Long-term debt

 

8,432

 

13,514

 

Deferred income taxes

 

300

 

177

 

Other liabilities

 

2,729

 

3,006

 

 

 

 

 

 

 

Total liabilities

 

39,505

 

43,847

 

 

 

 

 

 

 

Stockholders’ equity (Note F):

 

 

 

 

 

Preferred stock, $1 par value - authorized 1,000,000 shares; none issued

 

 

 

 

 

Common stock, $1 par value - authorized 18,000,000 shares; issued 11,956,000 at December 26, 2009 and 11,956,000 at September 26, 2009

 

11,956

 

11,956

 

Additional paid-in capital

 

16,737

 

16,479

 

Retained earnings

 

137,055

 

136,782

 

Accumulated other comprehensive loss

 

(627

)

(627

)

 

 

 

 

 

 

Total stockholders’ equity

 

165,121

 

164,590

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

204,626

 

$

208,437

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

4



 

COURIER CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

 

 

 

THREE MONTHS ENDED

 

 

 

December 26,

 

December 27,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

Net income

 

$

2,784

 

$

703

 

Adjustments to reconcile net income to cash provided from operating activities:

 

 

 

 

 

Depreciation and amortization

 

5,130

 

5,334

 

Stock-based compensation

 

349

 

383

 

Deferred income taxes

 

124

 

438

 

Gain on disposition of assets

 

(183

)

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(13

)

10,219

 

Inventory

 

233

 

(5,326

)

Accounts payable

 

(866

)

(3,612

)

Accrued taxes

 

(690

)

(2,817

)

Other elements of working capital

 

2,719

 

(1,349

)

Other long-term, net

 

(469

)

(94

)

 

 

 

 

 

 

Cash provided from operating activities

 

9,118

 

3,879

 

 

 

 

 

 

 

Investment Activities:

 

 

 

 

 

Capital expenditures

 

(1,020

)

(2,479

)

Prepublication costs

 

(1,036

)

(1,200

)

Proceeds on disposition of assets

 

590

 

 

Short-term investments

 

(63

)

113

 

 

 

 

 

 

 

Cash used for investment activities

 

(1,529

)

(3,566

)

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

Long-term debt (repayments) borrowings

 

(5,082

)

2,169

 

Cash dividends

 

(2,511

)

(2,494

)

 

 

 

 

 

 

Cash used for financing activities

 

(7,593

)

(325

)

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(4

)

(12

)

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the period

 

492

 

178

 

 

 

 

 

 

 

Cash and cash equivalents at the end of the period

 

$

488

 

$

166

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

5



 

COURIER CORPORATION

 

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

A.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Unaudited Financial Statements

The consolidated condensed balance sheet as of December 26, 2009, and the consolidated condensed statements of operations and statements of cash flows for the three-month periods ended December 26, 2009 and December 27, 2008 are unaudited.  In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair presentation of such financial statements have been recorded.  The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Such events were evaluated through February 3, 2010, the day before financial statement issuance (see Notes F and H).

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) have been condensed or omitted.  The balance sheet data as of September 26, 2009 was derived from audited year-end financial statements, but does not include disclosures required by generally accepted accounting principles.  It is suggested that these interim financial statements be read in conjunction with the Company’s most recent Annual Report on Form 10-K for the year ended September 26, 2009.

 

Goodwill and Other Intangibles

The Company evaluates possible impairment annually at the end of its fiscal year or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. There were no such events or changes in circumstances in the period presented.  “Other intangibles” includes customer lists related to Federal Marketing Corporation, d/b/a Creative Homeowner (“Creative Homeowner”) and Moore-Langen Printing Company, Inc. (“Moore Langen”), which are being amortized over 15-year and 10-year periods, respectively.  Amortization expense related to customer lists was approximately $50,000 in the first quarters of both fiscal 2010 and 2009.

 

Fair Value of Financial Instruments

Financial instruments consist primarily of cash, investments in mutual funds, accounts receivable, accounts payable and debt obligations.  At December 26, 2009 and September 26, 2009, the fair value of the Company’s financial instruments approximated their carrying values.  The fair value of the Company’s revolving credit facility approximates its carrying value due to the variable interest rate and the Company’s current rate standing.

 

Prepublication Costs

Prepublication costs, associated with creating new titles in the specialty publishing segment, are amortized to cost of sales using the straight-line method over estimated useful lives of three to five years.

 

Recent Accounting Pronouncements:

At the beginning of fiscal 2010, the Company adopted the provisions of the Financial Accounting Standards Board (“FASB”) authoritative literature on business combinations, which expands the definition of a business combination and changes the manner in which the Company accounts for business combinations. Significant changes include the capitalization of IPR&D as an indefinite-lived asset, the recognition of certain acquired contingent assets and liabilities at fair value, the expensing of acquisition-related restructuring actions and transaction costs, and the recognition of contingent purchase price consideration at fair value on the acquisition date. In addition, post-acquisition changes in deferred tax asset valuation allowances and acquired income tax uncertainties will be recognized as income tax expense or benefit. The accounting treatment for taxes will be applicable to acquisitions that close both prior and subsequent to the adoption of this guidance. The Company will apply this standard to the acquisition described in Note H. There was no material impact upon adoption of this guidance; however, this guidance may materially affect the accounting for future business combinations.

 

6



 

COURIER CORPORATION

 

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

B.            INVENTORIES

 

Inventories are valued at the lower of cost or market.  Cost is determined using the last-in, first-out (LIFO) method for approximately 50% and 53% of the Company’s inventories at December 26, 2009 and September 26, 2009, respectively.  Other inventories, primarily in the specialty publishing segment, are determined on a first-in, first-out (FIFO) basis.  Inventories consisted of the following:

 

 

 

(000’s Omitted)

 

 

 

December 26,
2009

 

September 26,
2009

 

Raw materials

 

$

4,085

 

$

4,384

 

Work in process

 

9,842

 

8,286

 

Finished goods

 

23,866

 

25,356

 

Total

 

$

37,793

 

$

38,026

 

 

C.            INCOME TAXES

 

The provision for income taxes differs from that computed using the statutory federal income tax rates for the following reasons:

 

 

 

(000’s Omitted)

 

 

 

Quarter Ended

 

 

 

December 26,
2009

 

December 27,
2008

 

Federal taxes at statutory rates

 

$

1,584

 

35.0

%

$

394

 

35.0

%

State taxes, net of federal tax benefit

 

227

 

5.0

 

45

 

4.0

 

Federal manufacturer’s deduction

 

(79

)

(1.7

)

(18

)

(1.6

)

Other

 

11

 

0.2

 

1

 

0.1

 

Total

 

$

1,743

 

38.5

%

$

422

 

37.5

%

 

D.            BUSINESS SEGMENTS

 

The Company has two business segments: book manufacturing and specialty publishing. The book manufacturing segment offers a full range of services from production through storage and distribution for religious, educational and specialty trade book publishers. The specialty publishing segment consists of Dover, Creative Homeowner and Research & Education Association, Inc. (“REA”).

 

Segment performance is evaluated based on several factors, of which the primary financial measure is operating income.  Operating income is defined as gross profit (sales less cost of sales) less selling and administrative expenses, and includes severance and other restructuring costs but excludes stock-based compensation.  As such, segment performance is evaluated exclusive of interest, income taxes, stock-based compensation, intersegment profit elimination, and impairment charges.  The elimination of intersegment sales and related profit represents sales from the book manufacturing segment to the specialty publishing segment.

 

7



 

COURIER CORPORATION

 

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

The following table provides segment information for the three-month periods ended December 26, 2009 and December 27, 2008.

 

 

 

(000’s Omitted)

 

 

 

Three Months Ended

 

 

 

December 26,
2009

 

December 27,
2008

 

Net sales:

 

 

 

 

 

Book manufacturing

 

$

54,841

 

$

50,882

 

Specialty publishing

 

11,561

 

11,503

 

Elimination of intersegment sales

 

(3,298

)

(2,738

)

Total

 

$

63,104

 

$

59,647

 

 

 

 

 

 

 

Pretax income:

 

 

 

 

 

Book manufacturing operating income

 

$

5,701

 

$

3,588

 

Specialty publishing operating loss

 

(514

)

(1,927

)

Stock-based compensation

 

(349

)

(383

)

Elimination of intersegment profit

 

(193

)

74

 

Interest expense, net

 

(118

)

(227

)

Total

 

$

4,527

 

$

1,125

 

 

E.          RESTRUCTURING COSTS

 

During fiscal year 2009, the Company recorded restructuring costs of $4.8 million associated with winding down Creative Homeowner’s distribution services and closing and consolidating the Book-mart Press manufacturing facility during the second quarter of fiscal 2009, as well as employee severance expenses related to additional cost saving actions taken in both of the Company’s segments. Overall, total headcount was reduced by approximately 12% during fiscal 2009.

 

The following table depicts the remaining accrual balances for these restructuring costs as of September 26, 2009 and December 26, 2009, which relate to closing and consolidating the Book-mart Press manufacturing facility.

 

 

 

(000’s Omitted)

 

 

 

Accrual at

 

 

 

 

 

Accrual at

 

 

 

September 26,

 

Additional

 

Cash

 

December 26,

 

 

 

2009

 

Charges

 

Paid

 

2009

 

Employee severance and benefit costs

 

$

495

 

$

 

$

(21

)

$

474

 

Lease termination and facility closure costs

 

546

 

140

 

(125

)

561

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

1,041

 

$

140

 

$

(146

)

$

1,035

 

 

In addition to the above, the Company recorded a gain on the disposition of Book-mart Press assets in the first quarter of fiscal 2010 of $140,000.  Amounts accrued for restructuring costs at December 26, 2009 and September 26, 2009 are included in “Other current liabilities” in the accompanying consolidated balance sheet.  The Company anticipates that payments associated with Book-mart Press, including rental payments related to the lease obligation and closing costs associated with the termination of the lease, will be substantially completed by July 2010.

 

8



 

COURIER CORPORATION

 

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

F.          STOCK-BASED COMPENSATION

 

The Company records stock-based compensation expense for the cost of stock options and stock grants as well as shares issued under the Company’s 1999 Employee Stock Purchase Plan. The fair value of each option awarded is calculated on the date of grant using the Black-Scholes option-pricing model. Stock-based compensation recognized in selling and administrative expenses in the accompanying financial statements in the first quarters of fiscal 2010 and 2009 was $349,000 and $383,000, respectively.  The related tax benefit recognized in the first quarters of both fiscal 2010 and 2009 was $125,000.  Unrecognized stock-based compensation cost at December 26, 2009 was $1.6 million, to be recognized over a weighted-average period of 2.2 years.

 

Stock Incentive Plan: The Company’s Amended and Restated 1993 Stock Incentive Plan provides for the granting of stock options and stock grants up to a total of 2,064,375 shares.  Under the plan provisions, both non-qualified and incentive stock options to purchase shares of the Company’s common stock may be granted to key employees.  The option price per share may not be less than the fair market value of stock at the time the option is granted and incentive stock options must expire not later than ten years from the date of grant.  The Company annually issues a combination of stock options and stock grants to its key employees. Stock options and stock grants generally vest over 3 years.

 

There was no stock option activity under this plan in the first quarter of fiscal 2010.  There were 463,886 option shares outstanding at December 26, 2009 with a weighted average exercise price of $24.74, a weighted average remaining term of 3.0 years, and no aggregate intrinsic value. Of these option shares, 257,553 were exercisable at December 26, 2009 with a weighted average exercise price of $28.87, a weighted average remaining term of 2.0 years, and no aggregate intrinsic value.  During the first quarter of fiscal 2010, 4,100 stock grants vested with a weighted-average fair value of $38.32 per share. At December 26, 2009, there were 62,061 non-vested stock grants outstanding with a weighted-average fair value of $22.88. There were 198,477 shares available for future grants under this plan at December 26, 2009.

 

Directors’ Option Plans: In January 2005, stockholders approved the Courier Corporation 2005 Stock Equity Plan for Non-Employee Directors (the “2005 Plan”). Under the 2005 Plan provisions, non-qualified stock options to purchase shares of the Company’s common stock may be granted to non-employee directors up to a total of 225,000 shares.  The option price per share is the fair market value of stock at the time the option is granted.  The options are immediately exercisable and have a term of five years.  The 2005 Plan replaced the previous non-employee directors’ plan, which had been adopted in 1989.  In the first quarter of fiscal 2010, no options were issued or exercised under these plans and 6,000 options with an exercise price of $24.39 expired.  At December 26, 2009, 180,687 option shares were outstanding and exercisable with a weighted average exercise price of $29.04, a weighted average remaining term of 2.4 years and no aggregate intrinsic value.  Directors may also elect to receive their annual retainer and committee chair fees as shares of stock in lieu of cash; no such shares were issued in the first quarter of fiscal 2010.  At December 26, 2009, there were 4,501 shares available for future grants under the 2005 Plan.

 

On January 20, 2010, stockholders approved the Courier Corporation 2010 Stock Equity Plan for Non-Employee Directors (the “2010 Plan”), replacing the 2005 Plan. The 2010 Plan makes 300,000 shares of common stock available for future grants under the plan.

 

Employee Stock Purchase Plan: The Company’s 1999 Employee Stock Purchase Plan (“ESPP”), as amended, covers an aggregate of 337,500 shares of Company common stock for issuance under the plan.  Eligible employees may purchase shares of Company common stock at not less than 85% of fair market value at the end of the grant period.  During the first quarter of fiscal 2010, no shares were issued under the ESPP.  At December 26, 2009, there were 11,776 shares available for future issuances.

 

On January 20, 2010, stockholders approved an amendment to the ESPP increasing the shares authorized under the plan by 300,000 to an aggregate of 637,500 shares of Company common stock available for issuance under the plan.

 

9



 

COURIER CORPORATION

 

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

G.         NET INCOME PER SHARE

 

The following is a reconciliation of the outstanding shares used in the calculation of basic and diluted net income per share.  Potentially dilutive shares, calculated using the treasury stock method, consist of shares issued under the Company’s stock option plans.

 

 

 

(000’s Omitted)

 

 

 

Three Months Ended

 

 

 

December 26,
2009

 

December 27,
2008

 

 

 

 

 

 

 

Weighted average shares for basic

 

11,892

 

11,827

 

Effect of potentially dilutive shares

 

17

 

4

 

Weighted average shares for diluted

 

11,909

 

11,831

 

 

H.            SUBSEQUENT EVENT

 

On January 15, 2010, the Company announced the acquisition of Highcrest Media LLC (“Highcrest Media”), a Massachusetts-based provider of software and solutions that streamline the production of customized textbooks for use in colleges, universities and businesses.  The $3 million cash acquisition, which has an additional future “earn out” potential payment of up to $1.2 million, will be accounted for as a purchase, and accordingly, Highcrest Media’s financial results will be included in the consolidated financial statements from the date of acquisition.  Highcrest Media operations will be included in the book manufacturing segment.  Due to the timing of the acquisition, the initial accounting of the value of the acquired assets and liabilities is not complete.

 

10



 

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

 

 

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

Critical Accounting Policies and Estimates:

 

The Company’s consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles.  The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes.  On an ongoing basis, management evaluates its estimates and judgments, including those related to collectibility of accounts receivable, recovery of inventories, impairment of goodwill and other intangibles, prepublication costs and income taxes.  Management bases its estimates and judgments on historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.  Actual results may differ from these estimates.  The significant accounting policies which management believes are most critical to aid in fully understanding and evaluating the Company’s reported financial results include the following:

 

Accounts Receivable.   Management performs ongoing credit evaluations of the Company’s customers and adjusts credit limits based upon payment history and the customer’s current creditworthiness.  Collections and payments from customers are continuously monitored.  A provision for estimated credit losses is determined based upon historical experience and any specific customer collection issues that have been identified.  If the financial condition of the Company’s customers were to deteriorate, it may result in their inability to make payments, and such events could possibly lead to their insolvency, and therefore additional allowances may be required.

 

Inventories.   Management records reductions in the cost basis of inventory for excess and obsolete inventory based primarily upon historical and forecasted product demand.  If actual market conditions are less favorable than those projected by management, additional inventory charges may be required.

 

Goodwill and Other Intangibles.  Other intangibles include customer lists which are amortized on a straight-line basis over periods ranging from ten to fifteen years. The Company evaluates possible impairment of goodwill and other intangibles at the reporting unit level, which is the operating segment or one level below the operating segment, on an annual basis or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.  The Company completed its annual impairment test at September 26, 2009 resulting in no change to the nature or carrying amounts of its intangible assets.  An impairment charge had been recorded in the second quarter of fiscal 2009 in the specialty publishing segment related to Dover Publications, Inc. The Company continues to monitor the value of its intangible assets closely in each of its segments.  Changes in market conditions or poor operating results could result in a decline in the value of the Company’s goodwill and other intangible assets thereby potentially requiring an additional impairment charge in the future.

 

Prepublication Costs.   The Company capitalizes prepublication costs, which include the costs of acquiring rights to publish a work and costs associated with bringing a manuscript to publication such as artwork and editorial efforts. Prepublication costs are amortized on a straight-line basis over periods ranging from three to five years.  Management regularly evaluates the sales and profitability of the products based upon historical and forecasted demand.  If actual market conditions are less favorable than those projected by management, additional amortization expense may be required.

 

Income Taxes.   The income tax provision and related accrued taxes are based on amounts reported on the Company’s tax returns and changes in deferred taxes.  Deferred income tax liabilities and assets are determined based upon the differences between the financial statement and tax bases of assets and liabilities.  Changes in the recoverability of the Company’s deferred tax assets or audits by tax authorities could result in future charges or credits to income tax expense, and related accrued and deferred taxes.

 

11



 

Overview:

Courier Corporation, founded in 1824, is one of America’s leading book manufacturers and specialty publishers.  The Company has two business segments: book manufacturing and specialty publishing.  The book manufacturing segment streamlines the process of bringing books from the point of creation to the point of use.  Based on sales, Courier is the third largest book manufacturer in the United States, offering services from prepress and production, through storage and distribution.  The specialty publishing segment consists of Dover Publications, Inc. (“Dover”), Research & Education Association, Inc. (“REA”), and Federal Marketing Corporation, d/b/a Creative Homeowner (“Creative Homeowner”).  Dover publishes over 9,000 titles in more than 30 specialty categories ranging from literature to paper dolls, and from music scores to clip art.  REA publishes test preparation and study-guide books and software for high school, college and graduate students, as well as professionals.  Creative Homeowner publishes books on home design, decorating, landscaping, and gardening, and sells home plans.

 

Results of Operations:

 

FINANCIAL HIGHLIGHTS

(dollars in thousands except per share amounts)

 

 

 

Three Months Ended

 

 

 

December 26,
2009

 

December 27,
2008

 

%
Change

 

 

 

 

 

 

 

 

 

Net sales

 

$

63,104

 

$

59,647

 

6

%

Cost of sales

 

45,808

 

45,219

 

1

%

Gross profit

 

17,296

 

14,428

 

20

%

As a percentage of sales

 

27.4

%

24.2

%

 

 

Selling and administrative expenses

 

12,651

 

13,076

 

-3

%

Operating income

 

4,645

 

1,352

 

244

%

Interest expense, net

 

118

 

227

 

-48

%

Pretax income

 

4,527

 

1,125

 

302

%

Provision for income taxes

 

1,743

 

422

 

313

%

Net income

 

$

2,784

 

$

703

 

296

%

 

 

 

 

 

 

 

 

Net income per diluted share

 

$

0.23

 

$

0.06

 

283

%

 

Revenues in the first quarter of fiscal 2010 increased 6% to $63.1 million compared to the same period last year.  Book manufacturing segment revenues grew by 8% to $54.8 million due to an increase in sales of four-color textbooks and religious scriptures.  In the specialty publishing segment, revenues increased slightly from the first quarter of last year to $11.6 million with strong sales growth at both Dover and REA largely offset by a decline in sales at Creative Homeowner. The winding down of Creative Homeowner’s book distribution services in the second quarter of fiscal 2009 also contributed to its sales decline compared to the first quarter of last year.

 

Net income for the quarter was $2.8 million, compared to $0.7 million in the first quarter of fiscal 2009, primarily due to the improvement in sales as well as prior cost reductions.

 

Restructuring Costs

During fiscal year 2009, the Company recorded restructuring costs of $4.8 million associated with ceasing Creative Homeowner’s distribution services and closing and consolidating the Book-mart Press manufacturing facility during the second quarter of fiscal 2009, as well as employee severance expenses related to additional cost saving actions taken in both of the Company’s segments.  Overall, total headcount was reduced by approximately 12% during fiscal 2009.

 

12



 

The following table depicts the remaining accrual balances for these restructuring costs as of September 26, 2009 and December 26, 2009, which relate to closing and consolidating the Book-mart Press manufacturing facility.

 

 

 

(000’s Omitted)

 

 

 

Accrual at

 

 

 

 

 

Accrual at

 

 

 

September 26,

 

Additional

 

Cash

 

December 26,

 

 

 

2009

 

Charges

 

Paid

 

2009

 

Employee severance and benefit costs

 

$

495

 

$

 

$

(21

)

$

474

 

Lease termination and facility closure costs

 

546

 

140

 

(125

)

561

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

1,041

 

$

140

 

$

(146

)

$

1,035

 

 

In addition to the above, the Company recorded a gain on the disposition of Book-mart Press assets in the first quarter of fiscal 2010 of $140,000.  Amounts accrued for restructuring costs at December 26, 2009 and September 26, 2009 are included in “Other current liabilities” in the accompanying consolidated balance sheet.  The Company anticipates that payments associated with Book-mart Press, including rental payments related to the lease obligation and closing costs associated with the termination of the lease, will be substantially completed by July 2010.
 

Book Manufacturing Segment

 

SEGMENT HIGHLIGHTS

(dollars in thousands)

 

 

 

Three Months Ended

 

 

 

December 26,
2009

 

December 27,
2008

 

%
Change

 

 

 

 

 

 

 

 

 

Net sales

 

$

54,841

 

$

50,882

 

8

%

Cost of sales

 

41,766

 

40,270

 

4

%

Gross profit

 

13,075

 

10,612

 

23

%

As a percentage of sales

 

23.8

%

20.9

%

 

 

Selling and administrative expenses

 

7,374

 

7,024

 

5

%

Operating income

 

$

5,701

 

$

3,588

 

59

%

 

Within the book manufacturing segment, the Company focuses on three key markets: education, religious and specialty trade.  In the first quarter of fiscal 2010, sales to the education market rose 15% to $19.8 million, primarily from sales of four-color textbooks to colleges and universities. However, sales of elementary and high school books were down reflecting continued pressure on state and local school budgets. Sales to the specialty trade market were comparable to the first quarter last year at $14.9 million, with growth in four-color sales as well as a number of new customers.  Sales to the religious market were up 12% to $18.3 million compared to the prior year’s first quarter, primarily from higher sales to the Company’s largest customer after a decline in sales in recent quarters.

 

Cost of sales in the book manufacturing segment increased by 4% to $41.8 million for the quarter compared to the same period last year, reflecting the increased sales volume offset in part by cost reductions achieved in fiscal 2009.  Gross profit increased by 23% to $13.1 million for the quarter, and as a percentage of sales, was 23.8% compared to 20.9% in last year’s first quarter.  The improvement in gross profit reflects the growth in sales, improved capacity utilization and a favorable sales mix, offset in part by continued industry-wide competitive pricing pressures.

 

13



 

Selling and administrative expenses for the segment increased 5% in the first quarter to $7.4 million compared to the same period last year.  Cost savings from staff reductions in fiscal 2009 were offset by an increase in variable compensation tied to this year’s increased sales and income.

 

First quarter operating income in this segment increased 59% to $5.7 million, compared to the same period last year, reflecting the growth in sales and gross profit.

 

On January 15, 2010, the Company announced the acquisition of Highcrest Media LLC (“Highcrest Media”), a Massachusetts-based provider of software and solutions that streamline the production of customized textbooks for use in colleges, universities and businesses.  The $3 million cash acquisition, which has an additional future “earn out” potential payment of up to $1.2 million, will be accounted for as a purchase, and accordingly, Highcrest Media’s financial results will be included in the consolidated financial statements from the date of acquisition.  Highcrest Media operations will be included in the book manufacturing segment.  Due to the timing of the acquisition, the initial accounting of the value of the acquired assets and liabilities is not complete.

 

Specialty Publishing Segment

 

SEGMENT HIGHLIGHTS

(dollars in thousands)

 

 

 

Three Months Ended

 

 

 

December 26,
2009

 

December 27,
2008

 

%
Change

 

 

 

 

 

 

 

 

 

Net sales

 

$

11,561

 

$

11,503

 

1

%

Cost of sales

 

7,148

 

7,761

 

-8

%

Gross profit

 

4,413

 

3,742

 

18

%

As a percentage of sales

 

38.2

%

32.5

%

 

 

Selling and administrative expenses

 

4,927

 

5,669

 

-13

%

Operating income (loss)

 

$

(514

)

$

(1,927

)

 

 

 

The Company’s specialty publishing segment reported first quarter sales of $11.6 million, up slightly from last year’s first quarter.  Sales were up 18% at Dover to $8.4 million, reflecting strong sales in a wide range of categories as well as an increase in direct-to-consumer sales resulting from enhanced marketing activity and promotional programs. Sales at REA increased 48% over last year’s first quarter to $1.9 million as a result of their most significant quarterly launch of new titles.  Sales at Creative Homeowner decreased 61% to $1.2 million, reflecting the persistent weakness in the nation’s housing sector, which has reduced store traffic and sales in the home center market, its largest channel. In addition, Creative Homeowner’s sales to book distributors declined as distributors continue to reduce their inventories. The sales decrease also reflects the cessation of Creative Homeowner’s book distribution services early in the second quarter of fiscal 2009, which supported one nationwide retailer and contributed approximately $1.2 million of revenue in last year’s first quarter. The Company anticipates an improvement in sales at Creative Homeowner with the upcoming spring and summer seasons.

 

Cost of sales in the specialty publishing segment decreased 8% to $7.1 million for the first three months of fiscal 2010 compared to the corresponding prior year period primarily due to the cost reductions initiated in fiscal 2009.  Gross profit increased 18% to $4.4 million in the quarter and, as a percentage of sales, increased to 38.2% from 32.5%% in the corresponding period last year. This improvement reflects higher sales volume at Dover and REA as well as the benefit of cost reductions in the prior year.

 

Selling and administrative expenses in this segment decreased 13% to $4.9 million in the first quarter compared to the same period last year.  Selling and administrative expenses in the first three months of last year included approximately $200,000 in severance pay and other costs related to Creative Homeowner ending its distribution service.

 

14



 

The operating loss for the specialty publishing segment for the first quarter was $0.5 million, compared to an operating loss of $1.9 million in last year’s first quarter.  Creative Homeowner’s operating loss in the quarter was $1.2 million, compared to a loss of $1.5 million in the first three months last year.  Combined operating income for Dover and REA increased by $1.1 million over the prior year’s first quarter reflecting their growth in revenue.

 

Total Consolidated Company

Interest expense, net of interest income, was $118,000 in the first quarter of fiscal 2010, compared to $227,000 of net interest expense in the first three months of last year.  Average debt under the revolving credit facility in the first quarter of fiscal 2010 was approximately $11.9 million at an average annual interest rate of 0.7%, generating interest expense of approximately $22,000.  Average debt under the revolving credit facility in the first quarter of last year was approximately $25.2 million at an average annual interest rate of 3.1%, generating interest expense of approximately $190,000.  Interest expense also includes commitment fees and other costs associated with maintaining the Company’s $100 million revolving credit facility.

 

The Company’s effective tax rate for the first quarter of fiscal 2010 was 38.5% compared to 37.5% for the same period last year with the increase primarily due to higher state income taxes.

 

For purposes of computing net income per diluted share, weighted average shares outstanding increased by approximately 78,000 shares from last year’s first quarter, reflecting options exercised and shares issued under the Company’s stock plans.

 

Liquidity and Capital Resources:

During the first three months of fiscal 2010, operations provided $9.1 million of cash, compared to $3.9 million in the first quarter of last year.  Net income was $2.8 million and depreciation and amortization were $5.1 million.  Working capital decreased by $1.4 million in the first quarter.

 

Investment activities in the first quarter of fiscal 2009 used $1.5 million of cash. Capital expenditures were $1.0 million.  For the entire fiscal year, capital expenditures are expected to be approximately $12 to $14 million, with approximately half of the spending relating to a new digital print operation.  The Company is currently negotiating a capital lease of up to $8 million for the digital print operation assets.  Proceeds of approximately $0.6 million were received on the disposition of assets, including equipment from the Book-mart Press manufacturing facility.  Prepublication costs were $1.0 million, compared to $1.2 million in the first three months last year.  For the full fiscal year, prepublication costs are projected to be approximately $5 million.

 

Financing activities for the first three months of fiscal 2010 used approximately $7.6 million of cash.  Cash dividends of $2.5 million were paid and borrowings decreased by $5.1 million during the first quarter of fiscal 2010.  The Company has a $100 million long-term revolving credit facility in place under which the Company can borrow at a rate not to exceed LIBOR plus 1.5%.  At December 26, 2009, the Company had $8.4 million in borrowings under this facility at an interest rate of 0.7%.  The revolving credit facility, which matures in 2013, contains restrictive covenants including provisions relating to the maintenance of working capital, the incurrence of additional indebtedness and a quarterly test of EBITDA to debt service.  The Company was in compliance with all such covenants at December 26, 2009.  The facility also provides for a commitment fee not to exceed 3/8% per annum on the unused portion.  The revolving credit facility is used by the Company for both its long-term and short-term financing needs.  The Company believes that its cash on hand, cash from operations and the available credit facility will be sufficient to meet its cash requirements through 2010.

 

15



 

Recent Accounting Pronouncements:

At the beginning of fiscal 2010, the Company adopted the provisions of the Financial Accounting Standards Board (“FASB”) authoritative literature on business combinations, which expands the definition of a business combination and changes the manner in which the Company accounts for business combinations. Significant changes include the capitalization of IPR&D as an indefinite-lived asset, the recognition of certain acquired contingent assets and liabilities at fair value, the expensing of acquisition-related restructuring actions and transaction costs, and the recognition of contingent purchase price consideration at fair value on the acquisition date. In addition, post-acquisition changes in deferred tax asset valuation allowances and acquired income tax uncertainties will be recognized as income tax expense or benefit. The accounting treatment for taxes will be applicable to acquisitions that close both prior and subsequent to the adoption of this guidance. The Company will apply this standard to the acquisition of Highcrest Media in January 2010. There was no material impact upon adoption of this guidance; however, this guidance may materially affect the accounting for future business combinations.

 

Forward-Looking Information:

This Quarterly Report on Form 10-Q includes forward-looking statements.  Statements that describe future expectations, plans or strategies are considered “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 and releases issued by the Securities and Exchange Commission.  The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements.  Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those currently anticipated.  Some of the factors that could affect actual results are discussed in Item 1A of this Form 10-Q and include, among others, changes in customers’ demand for the Company’s products, including seasonal changes in customer orders and shifting orders to lower cost regions, changes in market growth rates, changes in raw material costs and availability, pricing actions by competitors and other competitive pressures in the markets in which the Company competes, consolidation among customers and competitors, success in the execution of acquisitions and the performance and integration of acquired businesses including carrying value of intangible assets, restructuring and impairment charges required under generally accepted accounting principles, changes in operating expenses including medical and energy costs, changes in technology including migration from paper-based books to digital, difficulties in the start up of new equipment or information technology systems, changes in copyright laws, changes in consumer product safety regulations, changes in environmental regulations, changes in tax regulations, changes in the Company’s effective income tax rate and general changes in economic conditions, including currency fluctuations, changes in interest rates, changes in consumer confidence, changes in the housing market, and tightness in the credit markets.  Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements will prove to be accurate.  The forward-looking statements included herein are made as of the date hereof, and the Company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances.

 

16



 

Item 3.            QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

There have been no material changes from the information concerning the Company’s “Quantitative and Qualitative Disclosures About Market Risk” as previously reported in the Company’s Annual Report on Form 10-K for the year ended September 26, 2009.

 

Item 4.                                   CONTROLS AND PROCEDURES

 

(a)       Evaluation of disclosure controls and procedures

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this Quarterly Report, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

(b)       Changes in internal controls over financial reporting

 

There was no change in the Company’s internal control over financial reporting that occurred during the period covered by this Quarterly Report that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II.  OTHER INFORMATION

 

Item 1.           Legal Proceedings

 

None.

 

Item 1A.        Risk Factors

 

The Company’s consolidated results of operations, financial condition and cash flows can be adversely affected by various risks.  Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control.  These risks include, but are not limited to, the principal factors listed below and the other matters set forth in this Quarterly Report on Form 10-Q.  You should carefully consider all of these factors.  For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement contained in this report, see Forward-Looking Information in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Industry competition and consolidation may increase pricing pressures and adversely impact our margins or result in a loss of customers.

 

The book industry is extremely competitive.  In the book manufacturing segment, consolidation over the past few years of both customers and competitors within the markets in which the Company competes has caused downward pricing pressures.  In addition, excess capacity and competition from printing companies in lower cost countries may increase competitive pricing pressures.  Furthermore, some of our competitors have greater sales, assets and financial resources than us, particularly those in foreign countries, who may derive significant advantages from local governmental regulation, including tax holidays and other subsidies.  All or any of these competitive pressures could affect prices or customers’ demand for our products, impacting our profit margins and/or resulting in a loss of customers and market share.

 

17



 

A reduction in orders or pricing from, or the loss of, any of our significant customers may adversely impact our operating results.

 

We derived approximately 44% of our fiscal 2009 revenues from two major customers.  In fiscal 2008, we derived approximately 50% of our revenues from three major customers.  We expect similar concentrations in fiscal 2010.  We do business with these customers on a purchase order basis and they are not bound to purchase at particular volume or pricing levels.  As a result, any of these customers could determine to reduce their order volume with us or demand reduced pricing.  A significant reduction in order volumes or price levels with, or the loss of, any of these customers could have a material adverse effect on our results of operations and financial condition.

 

The substitution of electronic delivery for printed materials may adversely affect our business.

 

Electronic delivery of documents and data, including the online distribution and hosting of media content, offers alternatives to traditional delivery of printed documents.  Widespread consumer acceptance of electronic delivery of books is uncertain, as is the extent to which consumers are willing to replace print materials with online hosted media content.  To the extent that our customers’ acceptance of these electronic alternatives should continue to grow, demand for our printed products may be adversely affected.

 

Declines in general economic conditions may adversely impact our business.

 

Economic conditions have the potential to impact our financial results significantly.  Within the book manufacturing and specialty publishing segments, we may be adversely affected by the current worldwide economic downturn, including as a result of changes in government, business and consumer spending.  Examples of how our financial results may be impacted include:

 

·                  Fluctuations in federal or state government spending on education, including a reduction in tax revenues due to the current economic environment, could lead to a corresponding decrease in the demand for educational materials, which are produced in our book manufacturing segment and comprise a portion of our publishing products.

 

·                  Consumer demand for books can be impacted by reductions in disposable income when costs such as electricity and gasoline reduce discretionary spending.

 

·                  Tightness in credit markets may result in customers delaying orders to reduce inventory levels and may impact their ability to pay their debts as they become due and may disrupt supplies from vendors.

 

·                  Changes in the housing market may impact the sale of Creative Homeowner’s products.

 

·                  Reduced fundraising by religious customers may decrease their order levels.

 

·                  A slowdown in book purchases may result in retailers returning an unusually large number of books to publishers who, in turn reduce their reorders.

 

A failure to keep pace with rapid industrial and technological change may have an adverse impact on our business.

 

The printing industry is in a period of rapid technological evolution.  Our future financial performance will depend, in part, upon the ability to anticipate and adapt to rapid industrial and technological changes occurring in the industry and upon the ability to offer, on a timely basis, services that meet evolving industry standards.  If we are unable to adapt to such technological changes, we may lose customers and may not be able to maintain our competitive position.  We are unable to predict which of the many possible future product and service offerings will be important to establish and maintain a competitive position or what expenditures will be required to develop and provide these products and services.  We cannot assure investors that one or more of these factors will not vary unpredictably, which could have a material adverse effect on us. In addition, we cannot assure investors, even if these factors turn out as we anticipate, that we will be able to implement our strategy or that the strategy will be successful in this rapidly evolving market.

 

18



 

Our operating results are unpredictable and fluctuate significantly, which may adversely affect our stock price.

 

Our quarterly and annual operating results have fluctuated in the past and are likely to fluctuate in the future due to a variety of factors, some of which are outside of our control. Factors that may affect our future operating results include:

 

·                  the timing and size of the orders for our books;

 

·                  the availability of markets for sales or distribution by our major customers;

 

·                  the lengthy and unpredictable sales cycles associated with sales of textbooks to the elementary and high school market;

 

·                  our customers’ willingness and success in shifting orders from the peak textbook season to the off-peak season to even out our manufacturing load over the year;

 

·                  fluctuations in the currency market may make manufacturing in the United States more or less attractive and make equipment more or less expensive for us to purchase;

 

·                  issues that might arise from the integration of acquired businesses, including their inability to achieve expected results; and

 

·                  tightness in credit markets affecting the availability of capital for ourselves, our vendors, and/or our customers.

 

As a result of these and other factors, period-to-period comparisons of our operating results are not necessarily meaningful or indicative of future performance. In addition, the factors noted above may make it difficult for us to forecast and provide in a timely manner public guidance (including updates to prior guidance) related to our projected financial performance. Furthermore, it is possible that in future quarters our operating results could fall below the expectations of securities analysts or investors. If this occurs, the trading price of our common stock could decline.

 

Our financial results could be negatively impacted by impairments of goodwill or other intangible assets.

 

We perform an annual assessment for impairment of goodwill and other intangible assets at the end of our fiscal year or whenever events or changes in circumstances occur that would more likely than not reduce the fair value of a reporting unit below it’s carrying value.  A downward revision in the fair value of one of our acquired businesses could result in impairments of goodwill and non-cash charges.  Any impairment charge could have a significant negative effect on our reported results of operations.  For example, in the second quarter of fiscal 2009, due to a decline in sales and profits at Dover resulting from the continued downturn in the economic environment and in consumer spending, the Company recorded a non-cash, pre-tax impairment charge of $15.6 million, which represented 100% of Dover’s goodwill.

 

Fluctuations in the cost and availability of paper and other raw materials may cause disruption and impact margins.

 

Purchases of paper and other raw materials represent a large portion of our costs.  In our book manufacturing segment, paper is normally supplied by our customers at their expense or price increases are passed through to our customers.  In our specialty publishing segment, cost increases have generally been passed on to customers through higher prices or we have substituted a less expensive grade of paper.  However, if we are unable to continue to pass on these increases or substitute a less expensive grade of paper, our margins and profits could be adversely affected.

 

Availability of paper is important to both our book manufacturing and specialty publishing segments.  Although we generally have not experienced difficulty in obtaining adequate supplies of paper, unexpected changes in the paper markets could result in a shortage of supply.  If this were to occur in the future, it could cause disruption to the business or increase paper costs, adversely impacting either or both net sales or profits.

 

Fluctuations in the costs and availability of other raw materials could adversely affect operating costs or customer demand and thereby negatively impact our operating results, financial condition or cash flows.

 

19



 

In addition, fluctuations in the markets for paper and raw materials may adversely affect the market for our waste byproducts, including recycled paper, used plates and used film, and therefore adversely affect our income from such sales.

 

Energy costs and availability may negatively impact our financial results.

 

Energy costs are incurred directly to run production equipment and facilities and indirectly through expenses such as freight and raw materials such as ink.  In a competitive market environment, increases to these direct and indirect energy related costs might not be able to be passed through to customers through price increases or mitigated through other means.  In such instances, increased energy costs could adversely impact operating costs or customer demand.  In addition, interruption in the availability of energy could disrupt operations, adversely impacting operating results.

 

Inadequate intellectual property protection for our publications could negatively impact our financial results.

 

Certain of our publications are protected by copyright, primarily held in the Company’s name.  Such copyrights protect our exclusive right to publish the work in the United States and in many other countries for specified periods.  Our ability to continue to achieve anticipated results depends in part on our ability to defend our intellectual property against infringement.  Our operating results may be adversely affected by inadequate legal and technological protections for intellectual property and proprietary rights in some jurisdictions and markets.  In addition, some of our publications are of works in the public domain, for which there is nearly no intellectual property protection.  Our operating results may be adversely affected by the increased availability of such works elsewhere, including on the Internet, either for free or for a lower price.

 

A failure to maintain or improve our operating efficiencies could adversely impact our profitability.

 

Because the markets in which we operate are highly competitive, we must continue to improve our operating efficiency in order to maintain or improve our profitability.  Although we have been able to expand our capacity, improve our productivity and reduce costs in the past, there is no assurance that we will be able to do so in the future.  In addition, reducing operating costs in the future may require significant initial costs to reduce headcount, close or consolidate operations, or upgrade equipment and technology.

 

Changes in postal rates and postal regulations may adversely impact our business.

 

Postal costs are a significant component of our direct marketing cost structure and postal rate changes can influence the number of catalogs that we may mail.  In addition, increased postal rates can impact the cost of delivering our products to customers.  The occurrence of either of these events could adversely affect consumer demand and our results of operations.

 

Our facilities are subject to stringent environmental laws and regulations, which may subject us to liability or increase our costs.

 

We use various materials in our operations that contain substances considered hazardous or toxic under environmental laws.  In addition, our operations are subject to federal, state, and local environmental laws relating to, among other things, air emissions, waste generation, handling, management and disposal, waste water treatment and discharge and remediation of soil and groundwater contamination.  Permits are required for the operation of certain of our businesses and these permits are subject to renewal, modification and in some circumstances, revocation.  Under certain environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act, as amended (“CERCLA,” commonly referred to as “Superfund”), and similar state laws and regulations, we may be liable for costs and damages relating to soil and groundwater contamination at off-site disposal locations or at our facilities.  Future changes to environmental laws and regulations may give rise to additional costs or liabilities that could have a material adverse impact on our financial position and results of operations.

 

20



 

A failure to successfully integrate acquired businesses may have a material adverse effect on our business or operations.

 

Over the past several years, we have completed four acquisitions, including Moore Langen and Creative Homeowner in fiscal year 2006, REA in fiscal 2004 and Highcrest Media in fiscal 2010, and may continue to make acquisitions in the future.  We believe that these acquisitions provide strategic growth opportunities for us.  Achieving the anticipated benefits of these acquisitions will depend in part upon our ability to integrate these businesses in an efficient and effective manner.  The challenges involved in successfully integrating acquisitions include:

 

·                  we may find that the acquired company or assets do not further our business strategy, or that we overpaid for the company or assets, or that economic conditions have changed, all of which may result in a future impairment charge;

 

·                  we may have difficulty integrating the operations and personnel of the acquired business and may have difficulty retaining the customers and/or the key personnel of the acquired business;

 

·                  we may have difficulty incorporating and integrating acquired technologies into our business;

 

·                  our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing diverse locations;

 

·                  we may have difficulty maintaining uniform standards, controls, procedures and policies across locations;

 

·                  an acquisition may result in litigation from terminated employees of the acquired business or third parties; and

 

·                  we may experience significant problems or liabilities associated with technology and legal contingencies of the acquired business.

 

These factors could have a material adverse effect on our business, results of operations and financial condition or cash flows, particularly in the case of a larger acquisition or multiple acquisitions in a short period of time.  From time to time, we may enter into negotiations for acquisitions that are not ultimately consummated.  Such negotiations could result in significant diversion of management’s time from our business as well as significant out-of-pocket costs. Tightness in credit markets may also affect our ability to consummate such acquisitions.

 

The consideration that we pay in connection with an acquisition could affect our financial results.  If we were to proceed with one or more significant acquisitions in which the consideration included cash, we could be required to use a substantial portion of our available cash and credit facilities to consummate such acquisitions.  To the extent we issue shares of stock or other rights to purchase stock, including options or other rights, our existing stockholders may experience dilution in their share ownership in our company and their earnings per share may decrease.  In addition, acquisitions may result in the incurrence of debt, large one-time write-offs and restructuring charges.  They may also result in goodwill and other intangible assets that are subject to impairment tests, which could result in future impairment charges.  Any of these factors may materially and adversely affect our business and operations.

 

A failure to hire and train key executives and other qualified employees could adversely affect our business.

 

Our success depends, in part, on our ability to continue to retain our executive officers and key management personnel.  Our business strategy also depends on our ability to attract, develop, motivate and retain employees who have relevant experience in the printing and publishing industries.  There can be no assurance that we can continue to attract and retain the necessary talented employees, including executive officers and other key members of management and, if we fail to do so, it could adversely affect our business.

 

A lack of skilled employees to manufacture our products may adversely affect our business.

 

If we experience problems hiring and retaining skilled employees, our business may be negatively affected.  The timely manufacture and delivery of our products requires an adequate supply of skilled employees, and the operating costs of our manufacturing facilities can be adversely affected by high turnover in skilled positions.  Accordingly, our ability to increase sales, productivity and net earnings could

 

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be impacted by our ability to employ the skilled employees necessary to meet our requirements.  Although our book manufacturing locations are geographically dispersed, individual locations may encounter strong competition with other manufacturers for skilled employees.  There can be no assurance that we will be able to maintain an adequate skilled labor force necessary to efficiently operate our facilities.  In addition, unions represent certain groups of employees at two of our locations, and periodically, contracts with those unions come up for renewal.  The outcome of those negotiations could have an adverse affect on our operations at those locations.  Also, changes in federal and/or state laws may facilitate the organization of unions at locations that do not currently have unions, which could have an adverse affect on our operations.

 

We are subject to various laws and regulations that may require significant expenditures.

 

We are subject to federal, state and local laws and regulations affecting our business, including those promulgated under the Consumer Product Safety Act, the rules and regulations of the Consumer Products Safety Commission as well as laws and regulations relating to personal information.  We may be required to make significant expenditures to comply with such governmental laws and regulations and any amendments thereto. Complying with existing or future laws or regulations may materially limit our business and increase our costs.  Failure to comply with such laws may expose us to potential liability and have a material adverse effect on our results of operations.

 

Item 2.                   Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.                   Defaults Upon Senior Securities

 

None.

 

Item 4.                   Submission of Matters to a Vote of Security Holders

 

None.

 

Item 5.                   Other Information

 

There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors.

 

Item 6.                   Exhibits

 

Exhibit No.

 

Description

10.1

 

Courier Corporation 2010 Stock Equity Plan for Non-Employee Directors (filed as Exhibit B to the Company’s Definitive Proxy Statement, as filed on December 4, 2009, and incorporated herein by reference).

 

 

 

10.2

 

Amendment No. 1 to the Courier Corporation 1999 Employee Stock Purchase Plan (filed as Exhibit A to the Company’s Definitive Proxy Statement, as filed on December 4, 2009, and incorporated herein by reference).

 

 

 

31.1*

 

Certification of Chief Executive Officer

31.2*

 

Certification of Chief Financial Officer

32.1*

 

Certification of Chief Executive Officer

32.2*

 

Certification of Chief Financial Officer

 


* Filed herewith.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

COURIER CORPORATION

(Registrant)

 

 

February 4, 2010

 

By:

s/James F. Conway III

Date

 

 

James F. Conway III

 

 

 

Chairman, President and Chief Executive Officer

 

 

 

 

 

 

 

 

February 4, 2010

 

By:

s/Peter M. Folger

Date

 

 

Peter M. Folger

 

 

 

Senior Vice President and Chief Financial Officer

 

 

 

 

 

 

 

 

February 4, 2010

 

By:

s/Kathleen M. Leon

Date

 

 

Kathleen M. Leon

 

 

 

Vice President and Controller

 

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EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

10.1

 

Courier Corporation 2010 Stock Equity Plan for Non-Employee Directors (filed as Exhibit B to the Company’s Definitive Proxy Statement, as filed on December 4, 2009, and incorporated herein by reference).

 

 

 

10.2

 

Amendment No. 1 to the Courier Corporation 1999 Employee Stock Purchase Plan (filed as Exhibit A to the Company’s Definitive Proxy Statement, as filed on December 4, 2009, and incorporated herein by reference).

 

 

 

31.1*

 

Certification of Chief Executive Officer

31.2*

 

Certification of Chief Financial Officer

32.1*

 

Certification of Chief Executive Officer

32.2*

 

Certification of Chief Financial Officer

 


* Filed herewith.

 

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